As the fallout continued, the Australian Bankers’ Association pledged to fully cooperate with the Turnbull government’s banking royal commission, saying the major banks “do not fear scrutiny or accountability”.

Malcolm Turnbull orders royal commission into banks and financial sector

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And UBS banking analysts Jonathan Mott and Rachel Bentvelzen predicted the royal commission would cost Australia’s major banks between $50m and $100m each to participate.

Although shares in the big four banks fell sharply after the inquiry was announced, losses were pared back during the day. Commonwealth Bank finished 2% lower but NAB stock rose to close 1% higher.

Senior ministers repeatedly characterised the royal commission decision as “regrettable but necessary” to deal with mounting political pressure and uncertainty for the industry.

The Liberal National senator Barry O’Sullivan, whose private member’s bill to establish a commission of inquiry spooked the government into acting on Thursday, has conceded that his bill is now redundant.

“We welcome the prime minister’s and treasurer’s announcement,” a spokesman for O’Sullivan said on Thursday. “It’s an important opportunity to address the corporate culture of the finance sector and we look forward to working with colleagues as the royal commission progresses.”

Speaking hours after Turnbull’s announcement, Dutton told 2GB radio host Ray Hadley that the royal commission was regrettable.

But he said it would provide a good opportunity to investigate industry super funds, “which have union members and whatnot on the board.”

“The government’s made a decision,” he said. “So hopefully for some people they can present their cases and there can be some closure around what’s been a difficult situation.

“But there’s also another element to it – that is, to have a look at some aspects within the industry super funds which have union members and whatnot on the board.

“I think people lose a lot of their super through fees and through donations and all sorts of support for unions. So I think it’s a good opportunity in that sense to have a look at the detail and people can put all of that information forward and we can see the recommendations from the commission.”

The Industry Super Australia chief executive, David Whitely, said Dutton’s comments about industry super funds were “deeply surprising” but he would welcome the scrutiny.

“Let’s be very clear, the bank-owned superannuation funds have on average underperformed industry super funds by 2% per year over the past 15 to 20 years,” he said.

“That’s a thing the royal commission would want to definitively answer. Is it down to the governance of bank-owned funds? Is it down to their business model and profit orientation?”

The Australian Bankers’ Association said the royal commission was “unwarranted” and failed to recognise that Australia’s banks were currently undergoing “the largest reform program in decades”.

But it conceded growing calls for an inquiry were presenting an “unacceptable risk” to the stability of the financial system and the reputation of Australia’s banks.

“Australia’s banks have welcomed the prime minister’s decision to take action and provide certainty to the banking industry to the benefit of the national economy and all Australians,” the ABA said in a statement. “Banks will fully cooperate with the royal commission … our banks do not fear scrutiny or accountability.”

Mott and Bentvelzen sent a note to clients on Thursday saying the royal commission would likely be “expensive and distracting” for Australia’s banks (costing between $50m-$100m per bank).

“It is difficult to predict what the final recommendations will be,” they said. “However, we believe it is in all political parties’ interest for the recommendations to be material and lead to cultural change. Further, in the past the banks have used mortgage repricing to offset regulatory headwinds (higher capital, macro prudential and Bank Levy). We think this will become more challenging in a post royal commission environment.”

Treasurer Scott Morrison told the ABC’s 730 program that the decision to establish a royal commission was made after consulting the Reserve Bank governor, Philip Lowe, and the head of the Australian Prudential Regulation Authority, Wayne Byres, this week.

He also said he spoken to bank chiefs over the last week and it became clear that a royal commission would be necessary.

When asked by ABC host Leigh Sales if he no longer believed a royal commission would be a waste of millions of dollar, as previously stated, Morrison said: “I believe what we’ve decided to do will not be a waste, on the basis that the alternative was far worse.”